What Is Power of Attorney, Living Will, Beneficiaries

No one really wants to sit around thinking about what will happen if they get seriously sick or so incapacitated they can’t make sound financial decisions — let alone contemplate the actual D word. But that doesn’t mean you can forget about estate planning altogether. It won’t just go away if you ignore it, and you could be leaving yourself vulnerable in the future.

Maybe you have a will, which is usually the centerpiece of an estate plan and allows you to say who gets what when you die. But that won’t cover everything.

Even if you’re young or short on assets, you need to take steps to protect the quality of your life and the lives you leave behind. Luckily, the necessary documents won’t break the bank: A lawyer can typically draft them for you for a few hundred dollars or you can use a do-it-yourself option, such as Quicken WillMaker or LegalZoom, for even less. (But definitely consider using a lawyer if you have a particularly complicated or contentious family situation in which people are likely to challenge your wishes.)

More Than a Will

No one really wants to sit around thinking about what will happen if they get seriously sick or so incapacitated they can’t make sound financial decisions — let alone contemplate the actual D word. But that doesn’t mean you can forget about estate planning altogether. It won’t just go away if you ignore it, and you could be leaving yourself vulnerable in the future.

Maybe you have a will, which is usually the centerpiece of an estate plan and allows you to say who gets what when you die. But that won’t cover everything.

Even if you’re young or short on assets, you need to take steps to protect the quality of your life and the lives you leave behind. Luckily, the necessary documents won’t break the bank: A lawyer can typically draft them for you for a few hundred dollars or you can use a do-it-yourself option, such as Quicken WillMaker or LegalZoom, for even less. (But definitely consider using a lawyer if you have a particularly complicated or contentious family situation in which people are likely to challenge your wishes.)

Here’s what you need to do.

Draft a Durable Power of Attorney for Health Care

If you’re incapacitated and can’t make medical decisions for yourself, you want to have someone trustworthy making those decisions for you. A durable power of attorney for health care, also known as an advanced directive, names and legally empowers that person to act on your behalf. This isn’t a document only for older people: Terri Schiavo, whose termination-of-treatment case sponsored huge national debate, was just 27 when she had her heart attack.

Choose your decision maker carefully. You’ll want someone who can stand up to health care providers who may be pushing care you wouldn’t want, and who will put your desires first, regardless of his or her own wishes. If that’s a spouse or adult child, great, but a tenacious friend or other relative may be a better choice.

Make sure you discuss your wishes in advance and that the person is willing to serve. You may discover that he or she has reservations or moral qualms about doing what you ask. You’ll want to find that out while you still have time to find someone else.

Draft a Durable Power of Attorney for Finances

The people who have the skills to make sure your medical wishes are followed aren’t necessarily the same people you’d want to manage your money. So feel free to name a different person to pay the bills and make financial decisions should you become incapacitated.

You can determine the scope of responsibility, limiting it to just day-to-day transactions or granting the power to sell real estate or make financial gifts. Ideally, it would be someone who gets along with the person you named in your durable power of attorney for health care, since the two of them likely will have to work together to handle your affairs.

The person you name as your agent should be honest, trustworthy and competent in financial matters, but he or she doesn’t need to be an expert. Your agent can hire tax preparers or other financial professionals as necessary.

Create a Living Will

While a durable power of attorney can cover all kinds of health care decisions, a living will focuses on the decisions typically made at the end of your life. A living will explains what medical procedures you do and don’t want, and it can be used to help guide the person you’ve named in the durable power of attorney for health care if you’re not expected to recover.

End-of-life care can be a difficult and emotional subject. The Aging with Dignity site offers an interactive tool called Five Wishes, which can help you clarify your desires. The document meets legal requirements in 42 states and can be attached to state-mandated forms elsewhere.

Name a Guardian for Minor Children

If you don’t create a will or living trust that names a guardian, a judge will appoint someone — and it may not be someone you’d want to raise your kids. Your lack of planning could lead to court battles over your children or, worse yet, they could wind up in foster care.

When deciding who should be your children’s guardian, keep in mind that there is no single perfect person to raise your kids (other than yourself, of course). Pick someone who shares your values and who will raise your kids with love. Again, secure the person’s permission first and consider naming an alternate as well.

You may want to name a different person as the guardian or custodian of any money or property your children inherit to create a checks-and-balances system that separates control of your kids from control of their money. If you don’t want your children to get their hands on the money as soon as they technically become adults — at age 18 or 21, depending on state law — then you may also need to create a trust. You’ll either need to hire an attorney or spend some time with a book that details the process, such as Nolo’s Plan Your Estate.

Update Beneficiaries for Life Insurance

You may have a life policy through your job — most full-time workers do — or you may have purchased one on your own. Either way, if you die while the policy is in place, the proceeds would go to the beneficiary you designated — even if that person is now your ex-spouse (or you named a parent and you’ve since gotten married).

Take a minute to review your policy and make sure the beneficiary is the person you’d want to get the money today. In community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin — your current spouse will need to sign a waiver if you want to designate anyone else as a beneficiary.

Update Beneficiaries for Financial Accounts

Banks and brokerages often allow you to name a beneficiary who would inherit your account should you die. Retirement plans also typically have beneficiary forms. And guess what? Those beneficiary forms typically override your will, even if you no longer want the money to go to the people you originally designated.

Make a list of all your accounts and contact each financial institution to review your beneficiaries (many times, you can do this online). This is an exercise you should repeat every few years, and after every major life change, including marriage, divorce, death, birth, and adoption.